– during the Asian financial crisis, southeast Asian nations borrowed in foreign currency – why so? And how so?

Question

– during the Asian financial crisis, southeast Asian nations borrowed in foreign currency – why so? And how so?

In: 1

Answer 1

Let’s say you are the Government of country X, you have two choices: borrow dollars and pay back in dollars or borrow your currency and pay back in your currency. If you borrow dollars, you don’t inflate your currency. But you run the risk that if your currency drops you will have to pay more. You can avoid that by using your local currency, but lenders worry you’ll let the currency sink so you can pay them back more cheaply.